Joe Hockey responds to economy and promises

Shadow Treasurer Joe Hockey joins us from Canberra to discuss recent economic events as well as questions of paying for promises.

Transcript

LEIGH SALES, PRESENTER: The news on the economic front today was less than glowing.

The mining company, Fortescue Metals, announced it was delaying expansion plans and shedding jobs, citing the softening world economy and falling commodity prices.

The Reserve Bank decided to keep interest rates on hold thanks to the same factors and the fashion retailer Ojay went into administration on top of the closure of all the Darrell Lea chocolate shops.

To discuss the Australian economy, I was joined in the studio a short time ago by Joe Hockey. Thanks for coming in.

JOE HOCKEY, SHADOW TREASURER: Great to be here, Leigh.

LEIGH SALES: Is Fortescue's announcement today further evidence that the mining boom has peaked?

JOE HOCKEY: Well, it was Martin Ferguson, the Resources Minister, who said that the mining boom is over, but frankly it is perfectly logical that if commodity prices start to come off then the pipeline of investment will come off.

And the question is how do we keep the mining boom going for Australia, and I can assure you, you don't impose carbon taxes and mining taxes on the industry, which has the effect of slowing it down.

LEIGH SALES: But the Fortescue CEO said last month that he didn't expect that their company would be paying basically anything in terms of the mining tax over the next three years, so that wasn't a factor here?

JOE HOCKEY: No, I'm not suggesting it's a factor here, but all of these things add to the sovereign risk, which is exactly what Fortescue has been saying for some period of time.

They have been warning that all these taxes add to the sovereign risk of investing in Australia, add to the costs of production overall - and, quite frankly, it just makes it harder to proceed with major investment right across the mining industry.

LEIGH SALES: But the primary issue though, isn't it, the global economy... falling demand, the slowing economy in China, the problematic economy in Europe, that's the major factor there?

JOE HOCKEY: Sure, I'm not discounting that at all. It's the primary reason, but that's why we have to work harder to be competitive. And of course I've been warning, along with my Coalition colleagues, for more than two years now that this Government has bet the future of the Budget on the mining boom continuing forever. Clearly now we have this structural risk in our Budget that leaves us vulnerable.

LEIGH SALES: On that structural risk in the Budget, the basic problem is that revenue is falling but spending isn't. Tax collection as a share of GDP are about two per cent below where they were before the global financial crisis.

If you form government, how are you going to deal with this revenue problem in the Budget?

JOE HOCKEY: Well, the way to do it is to try and grow the pie. We have a six point productivity plan that focuses on growing the pie; the Labor Party focuses on redistributing the pie.

And if you actually grow the pie by having productivity measures in place such as getting welfare to work back in place; getting rid of the myriad of red tape that now exists under Labor - they've been introduces 11 new regulations every day since they were elected on average - that just adds to the cost burden of doing business in Australia, and it constrains the growth.

LEIGH SALES: But is cutting red tape and doing something like welfare to work really going to make up the sort of tax shortfall that we're talking about?

The figure's being bandied around between $50 and $70 billion for the things you want to do. That's a huge amount of money to make up?

JOE HOCKEY: Well the Budget is... over four years has expenditure well over $1.4 trillion, and of course it has a similar level of revenue. The fact is you've got to live within your means, and this government has record levels of expenditure.

Every year for the last four years and over the next four years, their expenditure is going to be more as a percentage of GDP than the last year of the Howard government, which they said was a big spending government.

LEIGH SALES: But if you form government that's also going to be the case for you, because you've got an ageing population, if you look at something like health spending that's already growing at double the rate of GDP growth - so you're going to have to find a way to secure more tax revenue, a substantial amount of tax revenue?

JOE HOCKEY: We don't automatically default to having more tax revenue. We default to having smaller government, giving people more control of their own finances. As we've said, we'll reduce the size of government.

We'll make those hard decisions to cut programs, to cut the bureaucracy in Canberra. I know that's not popular, but it's the right thing to do.

LEIGH SALES: When you say you want to cut the size of government, what sort of handouts would you cut?

JOE HOCKEY: Well, at the last election we announced $50 billion of cuts, and they were programs like the GP super-clinics - which are a classic example - but obviously the green car fund and others which we identified as being unnecessary, and we were proven absolutely right.

LEIGH SALES: But the big strain on the budget comes from the middle class welfare payments, which I think leads to something like between 40 per cent and 50 per cent of Australians pay no net income tax. What are you going to do to address that?

JOE HOCKEY: Well, can I just say to you when people talk about that "middle class welfare" here in Australia, they're talking about a household with an income of around $68,000. I don't see that as a huge amount of money.

You know, the best thing you can do to help Australian families is to reduce the cost of living, and the best way to do that, Leigh, is to get rid of the carbon tax.

LEIGH SALES: But you don't think we have a problem in Australia when you have nearly half the population not paying any personal income tax?

JOE HOCKEY: That's on a net basis, so it is offset by what they receive through Centrelink as family payments and so on. But I obviously am... you know, I've said a fair bit about entitlements and the culture of entitlements, particularly in Europe - Australia has, as a percentage of GDP, roughly the right amount but the problem is it's waste in other areas.

I'll just add, this government has made $120 billion of new unfunded promises. It's all on the never-never in the government. That has to end in tears for Australians with higher taxes.

LEIGH SALES: But you also have unfunded promises. You have the generous paid parental leave scheme?

JOE HOCKEY: No, we said we'd actually put a levy on business to pay in full. So it was fully offset. Fully offset, Leigh. That's the difference between Labor and ourselves. When we make promises we announce how we're going to fund them.

With Labor, I have seen... you've borne witness over the last few days to the most extraordinary spending spree as if there's no tomorrow from Julia Gillard. Well the tomorrow comes with a lot of pain for Australians through higher taxes.

LEIGH SALES: If you're going to make that criticism, do you guarantee when the Coalition announces policies are you going to announce - at the same time you make your announcements - you're going to announce how you pay for these things?

JOE HOCKEY: I've said emphatically time and time again, you will see how we pay for our promises before the election. And it won't be the day before the election - Friday afternoon like Wayne Swan has done in the last two elections - we'll do it before the election.

You will see a series of hard announcements but they will be the right announcements because we are not going to make promises that we cannot keep and we cannot afford.

LEIGH SALES: Joe Hockey, we're out of time, thank you very much for coming in.